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Saturday, December 29, 2012

US will continue with its policy of quantitative easing –
the US economy will do better than the current 2% GDP growth (expected to be
around 3%) - there will also be mild austerity measures to balance the budget
over long term (a small cut in expenditures and a mild increase in taxes for
the rich) –the US economy and the US dollar will emerge stronger over
the year.

Europe will continue in its difficult process of economic and
political re-integration – the overall EU GDP is expected to grow between 0%
and 0.5% –the European central bank will
continue with its policy of monetary easing – the German elections in 2013 will
not result in change in direction – Greece, Spain and Italy will continue to be in recession.

Asian economies and Latin American economies will
increasingly become more prominent – China and India will do better in 2013
than in 2012. Middle East will continue its transformation and Sub Saharan Africa
will grow further into prominence.

So here are my six
predictions for India for 2013:

Inflation will fall slightly
and RBI will reduce interest rates in the first half of 2013 – this will
result in rise in rise in Sensex between Jan and June 2013.FII inflows would be good (at least till
Q3 2013). In the last quarter of 2013, the govt will go into election mode
and it would result in volatile and directionless markets towards the end
of 2013.

USD/INR ratio will go
from current Rs 55 range to Rs 57 range by end 2103 – the devaluation
will not be more than 5-6% through the year.

Gold will give close to
10% returns in 2013 – it will beat inflation but will not be a great investment
option.

Long term Debt will
give 11-12% returns

Overall corporate
performance would be better in 2013 due to more market friendly policies.
Hence, it would be prudent to look at select stocks – it would be
possible to get 25% returns by investing in quality stocks at the right
price. Industries that I expect to outperform are FMCG, consumer
durables and financial services.

Improving economic
conditions in India would result in real estate doing better in 2013 than
in 2012 – so cities like Bangalore, Kolkata, Mumbai, Surat and Bhopal where
real estate did not perform in 2012, will perform in 2013. Hyderabad real
estate depends on the resolution of Telangana issue. I would urge caution
for real estate investments in Chennai, NCR, Jaipur and Pune as the real
estate market is over heated in these cities.

In all this, there is one joker in the pack – the Iran issue.
This would become a flash point during this year and that can impact the global
markets and it is difficult to predict the scenarios.

Wednesday, December 26, 2012

The time between Christmas and New Years is a good time to
look back and plan forward. The weather here in Bangalore is beautiful – most of
my friends have gone to Goa /Srilanka /Coorg /Chickmangalur etc and my students
are all over the country (but available on FB) -and I
am in a contemplative mood today.

So I went back to my blog dated 30th December
2011 to see what I had predicted then – and this is what I found :

I had said "Indian economy will slow
down a bit –reforms are the way out and our government will need to push
through a few reforms if we need to be anywhere near an 8% growth"- Indian economy did slow down to 5-6%
and Govt did falter (thanks to Pranab Mukherjee) and then Chidambaram has
tried hard to talk the markets up in the last few months -so here I was right

I had said "Europe problems are expected
to dampen the markets for the first few months –I am optimistic that it
will not result in a Lehman like crash – the Europeans will find a way out
(even though a few countries like Greece and Italy will be bruised badly)"- That
is exactly what has happened over the year

I had said "The US economy will limp through
a 1-2% growth in 2o12 (just like in 2011) – but in the absence of other
alternatives, the US markets will be deemed as the safest place to be and
US Dollar will be strong and the US Bond rates will be low".The
US economy is closer to 2% than 1% - they have done better than my
estimate – the US bond rates are still low – the Dollar is still very
strong and the US /INR rate has gone beyond what I had originally thought.

I had said "Chinese economy too will
slow down in 2012 – and the challenge there would be
growing their domestic consumption as currently 65% of Chinese GDP is
export based". - That
is exactly what has happened over the year

So based on these macro predictions, I had recommended the
following on Dec 2011 :

Debt - I had said "for anyone who has a one or two year investment
timeframe – invest now in Long term debt funds which have portfolio of 2011
debt –you can expect about 12% returns on these" – In the past 12 months Gilt funds has given 10% -11% returns – RBI did
not reduce the interest rates as predicted and hence the actual ROI was
lower than prediction by 1%. Here my prediction was close

Equity - I had said "for
those who are ready to invest for three years, you will get a 20% plus return
per year by investing in specific stocks" – The sensex
has gone up by 21.7% over the year due to FII activity and so I was spot on in this area – my own stock
portfolio has given me a 43.6% return in the past one year. I am happy to share
that I have beaten the sensex by 22% in 2012.

Gold - I had said "Ibelieve Gold will not give more than 15%
returns in 2012 in Indian rupees – It will beat Inflation in India – so it not
unsafe – but there are better investment options in 2012" – Gold has given 10.1% ROI in 2012 – after a few good years when we got
20% plus appreciation in gold, this year gold just beat the inflation of 9-10% by giving an
ROI of 10.1%.

Real estate - I had said "Investment in urban (not rural) areas is
recommended – if you can buy a house or flat or urban land anywhere in– you
will make 15-20% asset return per annum". Well this
is a generic statement and cities like Chennai, Jaipur, NCR, Pune and Lucknow
have gone up by 20% and there are cities like Hyderabad, Bangalore, Kolkata,
Mumbai, Surat, Bhopal where real estate has not appreciated much – and one city
Kochi where real estate has gone down in 2012.

So overall I am
happy with my predictions made in Dec 2011. I think I was correct on most
counts.

What are my
predictions for 2013-just wait for a
few days – I will share it shortly.

Friday, December 21, 2012

In April 2010, as I was leaving my corporate life, I toured
my offices in Chennai, Hyderabad, Gurgaon and Noida for a farewell session with
my colleagues. In each city, I also had a 2 hour session on wealth management
to all those interested and quite a few employees came and met me one to one
after these sessions for advice.

It is in one of these one to one meetings that I met this
colleague (whose name I cannot reveal) – he had a total asset base of Rs 60
lacs (a house partially on loan and some cash at hand).He was fairly senior in
our company – had a annual income of around Rs 25 lacs – had been working for
more than 10 years – had clearly known how to earn a decent income – but had
not learned how to invest his savings.

In those 10 minutes that we spent, I recall advising him to
invest in real estate as Gurgaon real estate was really hot. We discussed the
amount of loan that he should take and I shared my views about a good loan and
a bad loan. I also shared with him why he should not look at stocks and Mutual
funds and recommended to him an approach towards insurance. We also discussed
the difference between investing in real estate in emerging locations and also
the difference between pre launch offers and the post launch pricing of
builders.

We obviously kept in touch on and off and last week he came home .
He shared that his current assets is around 350 lacs and he has a housing loan
of around 50 lacs – so his net worth has gone up from 60 lacs to 300 lacs in 30
months ( CAGR of 90%). His current salary has also gone up slightly. His
investments are primarily in Real estate and he has now invested in 4
properties - most of which have appreciated very well – they are not yet
yielding rental income – but once that happens - he will be financially
free.

Let me share what he said to me- in his words -

"2009 was deep
recession and 2010 was when market started picking up. I took the risk of
investing in couple of properties at a pre-launch price at that time, which
gave me decent return. So, what I did right was:

1. Identify the
opportunity (Market had just started picking up)

2. Take some risk (I took the risk of investing in two
properties). It has paid off.

Raja, no one knows the future. I listened to you
couple of years back, got inspired by what you had done to manage your
finances, understood your advice and took some courage to act on it. I never knew
that it will pay me so much. Thanks a lot!"

Friday, December 14, 2012

Two days back, the US Fed reserve announced that it would
keep interest rates low till the US unemployment rates come down to 6.5% (from
the current 7.7%). Typically all central banks have two key policy goals – controlling
inflation and keeping unemployment low. Linking their monetary policy so
explicitly with a 6.5 % unemployment rate means that the “low global interest
rate regime” is here to stay for some more time. This would mean that the there
would be a constant supply of liquidity globally and this would be a continuing
opportunity for emerging markets including India.

We can see the effects of this excess global liquidity here
already. FII’s have pumped more than $ 20 Billion into the Indian markets since
Jan 2012 – the second highest amount since 1993 (when India opened its doors to
FII’s). Due to this, the sensex has gone up by 20% in the last 12 months. Easy liquidity will also help India finance its
external deficit at lower costs in 2013. It also means that Govt would find it
easier to mop up money through privatisation of select PSU’s.

However, easy liquidity also carries the downside of
increased commodity prices especially Crude oil and Gold (these are highest
import items for India).

So these are the positives and negatives of the Fed decision
with regards to us in India.

Will the India Stock markets go up in 2013?

Well
you decide. I will share my views about Indian stock markets in 2013 in a post
closer to New Year eve.

Wednesday, December 12, 2012

I know many of my readers, who invest in stock markets are trying
to figure out the answer to this question.

Kingfisher stock had a high of around Rs 30.9 in Feb 2011
and since then it has been a downward journey – it touched Rs 8.40 in August
2012 and since then has been languishing around Rs 15. Now we have this news
that Etihad airlines may take stake in the airlines. Both KF and Etihad have
not commented on this news. We also have
the news that 5 of its 42 KF planes have been taken back by lenders.

Yesterday, after the news of Etihad broke out, 85 lacs KF shares
have been traded in BSE and NSE. To get a feel of this number, the most
actively traded share in BSE and NSE yesterday was SBI and 23 lac shares
changed hands on this counter. The KF stock has gone up by 5% (it cannot go up
more due to controls by the regulator).The current price is Rs 15.7 (as of
12.12.2012)

The stock’s book value is -66.83 as per money control – what
it means is that in a normal transaction, the share holder must give you Rs 66.83
for buying the stock instead of you paying him Rs 15.7.

Now here is my take.

We all should have a core portfolio and a satellite portfolio.
The core portfolio is for long term investments and the satellite portfolio is
for short term opportunities. The split between core and satellite depends on
your life stage (age) and your risk tolerance level. For someone like me, I
have 90% core and 10% satellite. For my students, I would recommend 80% core
and 20% satellite. If you lose the satellite amount – you should not lose
your sleep. But if you lose your core amount – you should surely stop investing
(and come to me).

So here is the opportunity for investing in KF with your satellite
portfolio – I believe that the stock will go up for a few days – the final
value will be a derivative of the valuation that Etihad and KF managements
agree – but greed in the market will create opportunities for short term gains.
Do not wait for exit at peak – you will not be able to judge it. Exit once you
get a pre determined appreciation (may be 15%) .

Am I investing – No. But that is my personal decision.

Should you invest –
well decide for yourself. Remember today is 12.12.2012